Consumer confidence comes back

January reading rises to exceed pre-Sept.11 level

January 19, 2002|By Rob Kaiser, Tribune staff reporter.

Consumer confidence this month topped pre-Sept. 11 levels for the first time since the terrorist attacks, according to preliminary data released Friday from a closely watched index of consumer sentiment.

The University of Michigan index jumped for the fourth straight month, reaching 94.2 in early January, up from December's reading of 88.8. The index hovered around 92 last summer before plummeting to 81.8 following Sept. 11.

Several economists said Friday the quick rebound in consumer confidence is an encouraging indicator that the economy could soon recover, but warned another attack or other unexpected event may just as quickly reverse the trend.

"If attitudes were dollars we'd be in recovery by now," said Carl Tannenbaum, chief economist at LaSalle Bank in Chicago.

Prompted by low-financing offers, consumers continued buying houses, cars and other big-ticket items after the Sept. 11 attacks and many economists believe the spending will continue, particularly with energy prices dropping and inflation under control.

"Consumers think they can stretch their income a little bit and that makes them feel more confident about things down the road," said Gary Thayer, chief economist with A.G. Edwards, the St. Louis-based investment firm.

During the recession of the early 1990s, consumer confidence did not return as quickly, indicating "that this time around we will get back on our feet more rapidly," Tannenbaum said.

Yet Thayer noted the difference between two of the components that make up the University of Michigan sentiment index. While the component that gauges consumers' view of the future jumped from 82.3 to 91.7, another component that determines their current view of the economy slipped from 99 to 98.1.

"It would be better if both elements of the report were improving," Thayer said.

Additionally, the economists said consumer confidence is fragile, particularly after Sept. 11.

"I think these indicators are making the assumption of no more terrorist activity," Tannenbaum said. "That's one of the big clouds on the outlook for 2002."

In a separate economic report Friday, the U.S. trade deficit narrowed slightly in November to $27.89 billion, the government said.

Imports fell as exports stayed soft in the face of slower economic growth at home and abroad. The November trade gap was down $1.44 billion from the revised figure of $29.33 billion in October.

Opinions among economists are split about whether the Federal Reserve will cut rates another quarter percentage point at its meeting in late January.

Most analysts believe if the reduction goes through, it will mark the end of a string of year-long cuts that so far has pared interest rates by 4.75 percentage points.

In a speech last week, Fed Chairman Alan Greenspan warned that the U.S. economy still faces "significant risks" in the short term, though consumers have expressed much more optimism in surveys and by their continued spending.

"Consumers have been holding this economic ship afloat and I think they will continue to," said Dr. Sung Won Sohn, chief economist at Wells Fargo in Minneapolis. "It tells us how resilient and strong American consumers and the U.S. economy have been despite the terrorist attacks and the recession."

Lynn Reaser, chief economist at Banc of America Capital Management in St. Louis, said while Greenspan's comments can talk down markets, his message is unlikely to dent consumer confidence.

"Consumers probably pay more attention to their own situation," Reaser said. "Do they see layoffs happening in their own company? Is their neighbor still employed? Are they seeing increases in their own paycheck? What are gasoline prices at the pump?"